Examination of Witnesses (Questions 79
WEDNESDAY 16 JANUARY 2002
79. Mr Mitchell, good afternoon. I am grateful
to you. The Committee has agreed to switch the sessions round
and to take evidence from British Telecom first. I would like
you, if you would, just to identify yourself and your colleagues,
for the sake of the shorthand-writer; could you do that?
(Mr Mitchell) Certainly. My name is David Mitchell;
to my right is Ken Barton, to my left is Joanna Connor.
80. Thank you very much. Your memorandum really
concentrates on two specific areas, the PFI/PPP and the framework
agreement contracts. Could you tell us, very briefly, the main
issues that concern you?
(Mr Mitchell) I think, for the purpose of today's
Committee, what we would like to talk about, on behalf of BT,
regarding the Office of Government Commerce, is probably those
two things; both the PFI side, in a sort of overview level, and
our experiences with the OGC in doing so, and then move on, if
that is convenient, to the framework contracts, maybe the experiences
we have had in going through those, and how we have been engaging
with OGC, and some ideas maybe of how we might take things forward.
81. OGC has now been running, I think, just
under two years; have you noticed an improvement, do you think
they have got their act together?
(Mr Mitchell) I think it is fair to say that we have
seen an improvement in the 18 months, two years, that they have
been in place; it is an evolutionary organisation within Government,
and it is fair to say that it has gone through an evolutionary
cycle. But, to answer your question, yes, we have seen an improvement,
and hope to see, obviously, a continued improvement over the next
stage of its evolution.
82. And does that judgement extend to the Departments
themselves, given OGC's role in spreading good practice; do you
think the Departments now have the appropriate procurement skills
that they should have?
(Mr Mitchell) Obviously, it is a difficult thing for
me to comment on, in terms of their own competence, and I am sure
that OGC will have a view on that. I think what I can say is,
there are dealings with the various Departments, we have seen
the same sorts of levels of improvement in their procurement knowledge
that we have seen with OGC. It is a very positive influence that
OGC has had.
Chairman: Thank you.
83. Mr Mitchell, could I just draw attention
to your memo, which I think we found very helpful, and you refer
to the fact that PFIs and PPPs are becoming increasingly important,
but more difficult for you, as Government appears to be taking
less risk, unwilling to accept risk, guarantee income and specify
detailed requirements. I just wonder whether this is a reflection
of officials in Departments getting tougher on procurement, is
it actually evidence of them being better negotiators?
(Mr Mitchell) One would hope, would like to think,
that that was one of the things that we are starting to see. I
think, PFI, if we talk about that specifically, when it first
started, I think the ones that we saw were very appropriate. PFI,
if it is going to make sense, really needs to have clearly-defined
outcomes upon which both parties that are entering into it are
happy and understand and can work with. So, therefore, I think
there was a little bit, maybe, of the low-hanging fruit being
taken in the first instance. I think we did see a situation where,
maybe, the answer was PFI; what was the question, in some instances.
So, therefore, some inappropriate opportunities were being looked
at with a view to going down the PFI route and they were not really
appropriate. So I think we saw a little bit of that.
84. May I interrupt, because this is very interesting;
are there any examples you draw attention to?
(Mr Mitchell) I would not like to give any specifics
and I do not have any specifics to hand, but I think there are
certain parts of the market that are more mature, in working through
the PFI opportunities, and some markets that are not; and I would
say information technology in general was one that was not yet
as mature as it needs to be, with regard to PFI. But, to go back
to your point directly, is there an improvement in the way that
the various Departments are negotiating, I think, yes, there is.
85. Would you say that early PFI deals, in retrospect,
were overly generous to suppliers?
(Mr Mitchell) No, I would not say that, I would just
say that the early ones were very appropriate PFI deals, and therefore
I think it made a lot of sense. There were clearly-defined outcomes,
agreeable by both parties, so I think it was easier for both parties
to agree on a PFI framework. I think what you have now is, you
also have, OGC have brought in the comparator, so when you want
to go with a PFI you have to have a comparator available as well,
and I think that has actually informed the discussion better;
so actually what you are getting, if you like, is a more rigorous
check before PFI decisions are being made.
86. So you think, with the establishment of
the OGC, there is more rigorous checking; you see that as something
the OGC has brought to the process?
(Mr Mitchell) I think it is a very positive step,
87. Are there any other benefits that you can
discern that OGC has brought to PFI?
(Mr Mitchell) To PFI, in particular; I guess it is
the way that they are generally engaging with the Departments
prior to the Departments, if you like, engaging with potential
suppliers; and I know that is, let us describe that as, a bit
below the water-line. I cannot give you, again, chapter and verse
how they have done it and what they have done, but the general
feeling is that the discussionary work that goes on prior to a
Department coming out and hoping to engage in a PFI is making
it a more quantified opportunity before we, the private sector,
start to enter into the discussions. So I guess the "below
the water-line" activity that they must be doing, to engage
with the various Departments, is a good thing.
88. And just to get a feel for this, what sort
of activity do you think the OGC officials are engaging in that
is leading to these improvements; what do you think they are getting
up to that is improving the process?
(Mr Mitchell) I think it is general education, general
awareness; there is a lot more information, we understand, flowing
through OGC to the various Departments. I go back to things like
the Gateway process, the Gateway reviews that are in there, and
the fact that it is now common knowledge that Departments are
going to be subject to that sort of Gateway review means that
we are getting not perfect, please do not let me paint that picture
for you, but we are getting better-qualified opportunities coming
out for discussion, with regard to PFI.
89. And you would attribute that to the work
of the OGC?
(Mr Mitchell) I think it would be inappropriate for
me to say that that is the only thing that is going on, because
I am not 100 per cent familiar with what else may be going on
within those Departments to improve, if you like, the professional
procurement approach within those Departments; but one would like
to think that some of it was attributed to the work of OGC.
90. The OGC have told us that they were not
experiencing any resistance to PFI contracts from private sector
contractors. I just wonder if, the problems you have mentioned
in your memo, regarding risk, return and banks" willingness
to lend, have any of those problems led you, as a company, not
to bid for a PFI contract?
(Mr Mitchell) None that I am specifically aware of.
I still say, in terms of the decision to engage in a PFI, it revolves
around the quality, the qualified ability of the outcomes; and
if you can have that and you can agree that with the customer
then PFI discussion is a valid route to go down. So I do not think
that any of those external circumstances have stopped us from
going down a PFI route; what is more likely is that we do not
feel that those outcomes, or the thing that we are trying to do
is quantifiable enough for us to enter into a successful PFI deal.
91. Can I ask just one, quick question, which
is not directly related to the foregoing? Have you sensed any
problems relating to PFI post the decision to put Railtrack into
(Mr Mitchell) I cannot comment directly on that, from
BT's point of view, I am not the PFI specialist. I have not been
made aware, in any of the briefings that I have received, that
that has had a negative impact on the way that we have been approaching
92. Just before we leave that, did I understand,
Mr Mitchell, you were saying that you felt that some of the projects
now coming forward were inappropriate to PFI treatment?
(Mr Mitchell) If I can just clarify that. I think,
at some stages during the start of this, we did start to see PFI
being the answer; and what was the question, so to speak. So,
I think, previously, and I am going back now probably 12 months,
we felt there were a lot of cases that were coming through that
were being considered by the Departments as PFI that turned out
to be inappropriate, and they were only inappropriate due to that
point, that I made earlier, about, for the private sector to engage
in a PFI, the outcomes must be very clear and must be understandable
by both parties. It is the outputs; that if you try to do a PFI
based on inputs we found that to be a problem area, where both
we and the Departments spend a lot of time in not being productive.
93. I understand what you are saying, and you
are saying that if you cannot specify the output you are getting,
from whatever system it is, it is no good going for a PFI?
(Mr Mitchell) That is my belief and our experience
94. I am surprised that that seems to be fundamental
to the concept of a PFI. So you are actually suggesting that Departments
are being a little naïve about it?
(Mr Mitchell) I would say that, in recent ones that
we have looked at, that has not been the case, and now, and, as
I say, let us hope that, as part of the education process at OGC
and that the Departments themselves have been going through, we
are now not seeing such inappropriate PFI options coming out;
the ones that we are seeing now, which we are engaging in, and
I am sure there will be others, we feel now are quite appropriate,
and we are quite happy to consider them as valid options.
95. Did you also hint, when you were answering
Mr Ruffley, that you thought that IT projects were probably not
as appropriate to this?
(Mr Mitchell) Hopefully, I did not hint at that; what
I would say is, I think that the market, if you like, the information
technology, IT, market, has a way to go in its maturity towards
PFI-type opportunities. I think some markets, construction, obviously,
being an example, seem to be far better developed, have gone further,
if you like, through their evolution, and therefore are far more
comfortable for PFI.
96. But is not that curious, in that one of
the founding principles that make PFI an advantage to Government
is that the projects are able to bring in an expertise that Government
Departments do not have, necessarily, and this is, par excellence,
in the IT field? So, if you are saying these are not appropriate,
that is locking out an awful lot of the benefit that, potentially,
comes to the Government from having a PFI?
(Mr Mitchell) I think that, as we get a better understanding,
and that is "we" the industry as well as the Departments,
PFI opportunities using information technology will improve, and
we will be able to articulate better the points you make about
delivery of knowledge, knowledge management-type agendas and consistency
will become far better. I think it is about market maturity, from
both the customer and the supplier, that maybe is causing some
concern. I think the history, in some instances, of PFI using
technology, leads us in that direction; one would hope that it
97. But are you being reticent; is this because
the IT people, in-house, say, in a Government Department, actually
are not giving you the outcomes but they are telling you how to
do the input and how to do the job, is that it?
(Mr Mitchell) No.
98. You are getting second-guessed by the IT
people in Government Departments?
(Mr Mitchell) I think it would be inappropriate for
me to say that that was the case.
99. Can I tempt you to be inappropriate and
say what you think?
(Mr Mitchell) It is my opinion that we are now seeing
appropriate information technology PFIs coming out, and we are
happy with the ones that are coming out. That is as far as I would
like to go, on this one.